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Fringe benefits are forms of compensation you provide to employees outside of a stated wage or salary. Common examples of fringe benefits include medical and dental insurance, use of a company car, housing allowance, educational assistance, vacation pay, sick pay, meals and employee discounts. Total compensation includes regular income and all of these paid benefits.

Purpose

Fringe benefits are a major consideration in a total compensation package. Salaries are important, but employees often accept or leave a job based on the quality of fringe benefits. Health insurance costs have become very expensive and employees that may have previously left a job more likely stay for these benefits. Fringe benefits are tools used by human resources to hire and retain top talent and to help create a motivated workforce.

Taxable Income

Fringe benefits are often taxable income and the IRS publishes an annual Taxable Fringe Benefit Guide that helps address routine and special treatment of fringe benefits in individual tax preparation. The IRS defines various benefits as either nontaxable, partially taxable or tax-deferred, meaning you pay taxes later when you file your return. Qualified health plans are noted as a common qualified exclusion, or nontaxable item. Transportation subsidizes are often partially taxable up to a certain level. Pension plans are noted as a common tax-deferred item where you pay no taxes initially but you do at tax time. The guide explains in more detail common tax rules and exclusions.

Benefits Statement

Employers usually provide all employees with annual personalized benefits statement. This lists regular income and the value of the benefits you provide. A common format lists employer paid benefits on one side and any employee paid expenses on the other. Some employers pay partial premiums on certain insurances and offer optional coverages as well. This statement gives your employees a better since of the investment you make in them. This is useful generating employee loyalty and showing your employees their real value to you.

Competitiveness

Some employers offer unique fringe benefits as a way to create an employee-friendly atmosphere and to attract certain types of employees. High-tech companies, for instance, may provide employees with iPads, cell phones and other technology routinely used for work. Others offer coffee bars and free snacks to create a more homelike office feel. Generally, the more competitive the industry, the more fringe benefits you have to offer to attract top talent. If the employee pool is large, you have more flexibility in offer what you believe are motivating benefits.

About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.